Milk co-operatives struggle financially in surplus times

A file photo of a milk collection unit in Mandya district, Karnataka. The state government has said it will provide interest subsidy over and above 4% for ensuring that milk unions in the state are able to make timely payments. Photo: Hemant Mishra/Mint

Banglore: A ban on the export of milk products aimed at reining in a surge in prices almost two years ago has come full circle and put milk co-operatives in some states under financial stress.

While the Union government lifted the ban in late November, milk federations in Karnataka, Andhra Pradesh, and Tamil Nadu have had to resort to government support and procurement holidays to stem financial losses as they wait for the export market to pick up.

The ban on export of milk products was imposed in February 2011 after milk prices had risen nearly 20% at the retail level and 12% at the wholesale level. This has led to the stocks of skimmed milk powder (SMP) rising to an all-time high.

According to officials from the National Dairy Development Board (NDDB), India is currently sitting on nearly 1.2 lakh tonnes of SMP while the annual requirement is close to 80,000 tonnes. SMP is used to increase the shelf life of excess milk after supplying to local areas.

With such large quantities of unused stock, milk federations are feeling the stress on their balance sheets as SMP prices have fallen below production cost. Earlier this month, the Karnataka government announced that it would provide interest subsidy to the Karnataka Milk Federation (KMF) towards working capital loans. KMF is the second largest milk co-operative in the country after the Gujarat Cooperative Milk Marketing Federation Ltd, which markets the Amul brand.

The Karnataka government has said that it will provide interest subsidy over and above 4% for ensuring that milk unions in the state are able to make timely payments.

A senior KMF official, who requested anonymity because he is not authorized to speak to the media, said that it cost the milk unions around Rs.180-190 to produce one kilogram of SMP. However, prices of SMP are hovering at around Rs.135-140.

Currently, KMF procures nearly 54 lakh kg of milk everyday, as against total sales of 40 lakh kg in the form of milk and milk products. The surplus ofRs.14 lakh kg is being converted to SMP and butter—resulting in a loss of nearly Rs.5.60 crore per day, the official added. The government has also said that it will share half the loss due to the distress sale of SMP until March 2013.

While the upcoming elections influenced the state government’s response to the crisis, its own policies also played a role. In 2010, the state government announced a subsidy of Rs.2 per litre of milk procured to incentivize milk production. “Milk procurement over the last one year has increased by 19% since the price is very attractive for farmers,” the KMF official said.

In Andhra Pradesh, politics took a different turn in dealing with the same problem. In November, the AP Dairy Development Cooperative Federation(APDDCF) declared a procurement holiday for three days in a month due to its inability to process surplus milk of nearly 1.70 lakh litres per month.

An NDDB official said on condition of anonymity that the situation was similar in Rajasthan, Tamil Nadu, Maharashtra and Haryana.

“Gujarat is an exception as they have a national and international market through their brand Amul,” the official said. NDDB did not respond to questions sent by Mint.

The lifting of the export ban on SMP by the Central government in February this year has improved prices. Manjunath says that SMP prices have risen from Rs.120 per kg to Rs.140 per kg.

In November, the Director General of Foreign Trade also allowed the export of other milk products with no restrictions.

Lack of capacity to process increasing milk production is also proving to be a problem.

C. Manjunath, president of the Bangalore Milk Union, says that the Union was transporting nearly 2.5 lakh litres of milk daily to Pune and Chennai as it did not have the capacity to process milk to SMP. The latest National Dairy Plan envisages improving the handling of marketable milk surplus from 30% to 65% by 2021-22. The plan also expects to double milk production in another 15 years.